Tuesday, December 30, 2014

While the news media is busy recapping the big stories of 2014, it is also worth considering the stories that didn’t happen, or more precisely, the hype that didn’t turn into anything. The biggest such story, as I look back, was the Ebola outbreak that never reached North America. It all sounded like high drama at the time, with governors overruling medical diagnoses and locking up medical professionals who had no symptoms but “looked sick.” The way the story faded just one week after the U.S. election should tell you the Ebola scare was created mainly for political purposes.

But that is just one story where the speculation got way out ahead of the reality. The news is filled with these stories every day. All this year there were ongoing rumors of retail bankruptcies such as Sears and Radio Shack that still haven’t happened (though there were a few — most notably Delia’s and Deb). In any given year there will be big talk about new products and experimental designs that never come to light, and that happened this year too with too many “breakthroughs” to mention. Some of those, of course, can now be found on the lists of products to watch for in 2015 (at the top of the list, a smart watch that tethers to your mobile phone). It is hard to guess how many of the products on those lists will amount to anything. When you look at the news, consider how much of it is hype, speculation, hearsay, and opinion — and weigh it accordingly.

Saturday, December 27, 2014

I saw a few new things in my Christmas shopping. One of the more surprising things was the new style of CFL light bulbs — they are doing their best to take on the style of high-efficiency LED light bulbs. Both the bulb itself and the packaging are designed to look like LED light bulbs. And this is not a strange exception; these are the only CFLs left in the store, occupying only one foot of shelf space near the center of the light bulb display.

The heat-diverting features of an LED bulb are gratuitous when used with a twisty CFL tube. A CFL bulb generates more heat than a comparable LED bulb but doesn’t concentrate heat at any particular point and therefore doesn’t need heat diversion. The LED-like features do not improve the CFL — they merely disguise it to pull in customers who are not paying close attention. However, when they get the bulb home, install it, and flip on the light switch, they can easily see that they have purchased a plain old CFL. You assume customers will make this mistake only once, and some surely will be angry about being tricked, but that loss of reputation doesn’t much matter for a product that has a useful life approaching 10 years. CFLs won’t even be on the shelf when customers return to buy replacement bulbs in 2024.

If CFLs can sell only by tricking customers, it is a sign that the CFL technology is nearing the end of its life already. There is hardly any defensible financial rationale for CFLs at this point. They exist because they still have an initial cost advantage over LEDs, but the savings of a buck or two up front buys you a visibly inferior quality of light and a disadvantage of perhaps $30 in the cost of electricity at the back end. I can understand seeing CFL bulbs in motels, as a conspicuously inferior product that few guests would be tempted to steal. Most people don’t want to be conspicuously inferior at home. LED bulbs have seen vast improvements over the past five years. It will take only a few more marginal improvements in LEDs to drive CFLs out of the stores.

Friday, December 26, 2014

Austria’s Volksbanken AG will surrender its banking license next year under a plan approved by owners this week. The move is part of a plan to turn the bank into a bad bank. Without a license, it will no longer be subject to capital requirements. It will also stop taking deposits and making loans. It will continue to collect payments on its portfolio of loans and other assets. The idea is to make capital requirements easier to meet for the regional banks that own half of it. The national government owns nearly half of Volksbanken since a 2012 bailout. Volksbanken will also improve its capital position by selling its Romanian unit to Banca Transilvania, the third largest bank in Romania, and it will surely seek to sell other assets if it can.

Tuesday, December 23, 2014

Well, that didn’t take long. The last OfficeMax store in my local area is ready to close. The sign out front might say “Moving Sale,” but that description is accurate only in the sense that after the sale is over, the unsold merchandise will be shipped off to the nearest Office Depot store, in the next county. The store fixtures are not making the move, and many have price tags on them. Those are the real bargains in the store. The “Moving Sale” signs reflect the hope that customers might make the trip to the locations that remain open, but that is no more than a faint hope. Who would drive 16 miles to buy office supplies when there is a Kmart just around the corner? The 25% and 30% discounts have brought in more customers than usual, but the store is still conspicuously quiet when compared to the shopping mall it faces, two days before Christmas.

The local OfficeMax closing is part of a trend that saw a Staples store close already this year three miles away on the same street. More store closings are surely on the way as paper documents lose their central place in the business office. With fewer pages to print, an office supplier can’t sell enough ink and toner to keep the store in business. Office Depot announced the closing of 400 stores in May, but that number quickly rose to 450 and seems to be going up from there. In an ominous sign, staffing and worker hours are being cut in the stores that remain. Office Depot held off on store closings after the merger, not wanting to tell OfficeMax customers, “We bought your store just so we could shut it down.” Now that the store-closing habit has set in, though, it would hardly be a surprise if Office Depot ends up closing more than half of its locations and dropping the legacy OfficeMax name completely.

I can’t lament the loss of OfficeMax, not after what it has turned into. I would buy toner here for my laser printer, but I can’t. The printer I have was the biggest-selling laser printer model here last year, but that was last year. As this year winds down, the store no longer carries that toner cartridge. If I can’t buy toner here, what can I buy? Roaming the aisles, I picked out headphones and a USB flash drive. I tossed gel pens, Sharpies, and batteries into my basket. If I had paid full retail price my sales ticket would still have been under $100 — and I bought enough supplies to get through the next year at least. That kind of revenue isn’t enough to keep a store open.

Monday, December 22, 2014

Amazon hates hyphens. This was supposed to be a secret, but they let the cat out of the bag last week.

For its ebook platform, Amazon has an unstated policy of limiting any one book to a maximum of 100 hyphenated words. This turned out to be a problem for a novelist whose book refers to a “brown-furred monster” and other hyphenated creatures. Amazon pulled the novel and demanded that those frightening hyphens be removed. If you haven’t heard this saga, here is Alison Flood’s account at Guardian’s Books blog:

The novel High Moor 2: Moonstruck has since been reinstated at Amazon, but apparently only as a courtesy to one of Amazon’s more successful authors. It goes without saying that a major publishing house wouldn’t have been troubled with any such demand from Amazon that it rewrite one of its novels. Most of us, though, if we write a novel that has too many “brown-furred monsters” in it, may have little choice but to accede to Amazon’s demand that we rewrite the story to feature “brown furred monsters” instead (at least for the edition sold on Amazon).

Amazon’s ham-handed attempts to steer the literary world are hardly a threat to civilization, but it is troubling to some authors and readers that Amazon even has this kind of power, the power to permit some common, familiar styles of writing while blocking others based on nothing more than its own corporate literary preferences. It is the same suspicion that is routinely raised with any similar abuse of monopoly power. Amazon’s desire to change the way the world writes is probably most troubling to Amazon’s own lawyers, though. Amazon cannot afford to take the position that it is exercising any degree of editorial control over the products it sells. Legally, when you assume editorial control you take on a degree of responsibility for content. That is an expensive responsibility that even Amazon cannot afford. This is probably why Amazon 100-hyphen rule was a secret — to keep Amazon’s own lawyers from finding out about it. I assume now that the lawyers at Amazon will put a stop to this particular assertion of editorial control in the name of quality control. But just as certainly, in Amazon’s position of power, some kind of editorial control will crop up again. This will keep happening as long as Amazon has the kind of monopoly position that it currently occupies.

Friday, December 19, 2014

The Detroit branch of the Wall Street bailout is effectively over after six years with the Fed cashing out its last shares in Ally Financial. The bank changed beyond recognition during its years on government support. Summing up the Wall Street bailout as a whole, it roughly broke even for the government in an accounting sense, but was a big loser if you consider related effects such as the lost tax revenue.

The currency collapse in Russia is a likely sign that the country spent too much this year trying to stabilize its banking system. This week more of the transaction clearing network was shut down because of wild currency fluctuations, leading to panic buying of imported goods such as vegetables and furniture. Ikea, Apple, and Audi are among foreign companies temporarily shutting off product orders in Russia because of a rush of purchases amid the currency instability. The Russian ruble at its lowest points this week was down by about half from the beginning of the year. Besides the reduced purchasing power, Russians’ income is at risk because of the pension funds used to finance one phase of the bank bailouts this fall. Interest rates were raised to 17 percent at the start of the week, possibly stabilizing the currency but adding to fears of a widespread banking collapse.

The NCUA says it does not expect to need any more money to stabilize the corporate credit unions. These are the large regional credit unions that are owned by retail credit unions. The corporate credit unions collapsed because of the mortgage-backed securities they owned.

There was another small bank failure in Minnesota on the periphery of the Minneapolis metro area, this time to the southwest in Mankato. The failed bank is Northern Star Bank, closed by state banking regulators. The successor, BankVista, is purchasing the bank’s assets ($19 million) and taking over the deposits ($18 million). The failed bank had been under regulatory scrutiny for years because of troubled assets.

This is likely the last U.S. bank failure of the year. The year ends up with a tally of 18 FDIC-insured bank failures, along with 11 credit union liquidations. These are numbers that, after the previous five years, may be described as near normal.

Thursday, December 18, 2014

I was not the only one surprised one day ago when Sony Pictures decided to cancel the scheduled Christmas release of the assassination comedy movie that was the specific target of the recent data theft at the company. It is, of course, a bad precedent if state-sponsored spies and terrorists have enough influence to get an artistic work pulled from the market, but obviously Sony is more aware of that than most of us. My take on the situation is that Sony Pictures is more battered and bruised by the massive data release than we can tell from the outside. Perhaps the future of the organization is in doubt, or perhaps there is just an unprecedented level of chaos in the office, combined with the usual toll that December vacations take on any corporate operation. Whatever the reason, Sony is weakened enough that it does not have its usual ability to respond to a crisis.

I can’t bring myself to look through any of the data stolen from Sony, given the obvious conflict of interest that would imply. In any case, the historical documents, many of them said to be from August or earlier, won’t answer the most important questions that lie ahead, particularly the question of what else there is that Sony won’t be able to do in the coming weeks.

Wednesday, December 17, 2014

Half-price oil is a mistake that won’t last long. The financial collapse in Russia, though related to world oil prices, is another matter.

Half of Russia’s GDP is related to energy exports, so with half-price oil, the scale of its economy is down by 25 percent. Yet a dozen other countries have a higher energy exposure, but are taking the oil price fluctuations in stride. Russia’s current problems started before the recent oil decline, and they go deeper than oil. Some of the headlines depict Russia this year as the victim of a series of unlikely misfortunes, but nothing could be farther from the truth. As the best example, Russia had near-ideal agricultural weather this year. That made it possible for the country to impose food boycotts on half the world without suffering much of a hunger crisis at home. Russia’s good luck is not just a matter of weather. Its hasty military adventures have gone better than it would have any right to expect. A large-scale banking bailout has not led to a broad collapse, at least not yet. Russia’s good fortune in these areas and others will surely change at some point.

A plurality of U.S. analysts tend to blame Putin for Russia’s missteps, but the government’s moves are hardly controversial among the public in Russia. It is a misadventure that the country is taking together, and that extends to the new moves to put the country on a war footing in response to the economic crisis. My guess, though, is that the policy consensus will fall apart when people realize that this year’s crisis adjustments are not temporary fixes for a temporary problem, but the permanent changes of an empire in decline. There is a very real chance that the Russian banking system could fail in 2015, and if it does, the public pension system and the social compact will fail with it. By the time that bridge is crossed, the public mood will surely have shifted.

Saturday, December 13, 2014

All the U.S. retail data for the month of November indicates a good solid month of sales. The lull at Black Friday, then, was probably just the result of so many Christmas shoppers who got shopping done early. It makes sense with the shopping mood indicators everyone was talking about: lower gasoline prices, early snow cover, consumer sentiment, and so on. It is also consistent with the ten-year trend of Christmas shopping moving earlier in the season, as shoppers try to avoid the risks and hassles of Black Friday and the mid-December rush.

I consider this also a favorable indication for a reduction in consumer time pressure. If so many people are ahead of the curve with their Christmas shopping, it is a sign that people are getting ahead of their time pressure in general. It’s not enough to call a new trend, but it’s the first big move away from time pressure that I’ve been able to identify in the United States since at least 2002. It is too early to say this with confidence, but my hope is that this may mark the end of the long-term trend of ever-increasing time pressure on consumers.

Friday, December 12, 2014

The U.S. House voted to repeal most restrictions on derivatives for Wall Street banks, setting the stage for a spectacular banking sector collapse in the future.

A credit union was closed tonight. Health One Credit Union, in Detroit, had about 4,000 members and $15 million in assets. Member accounts and assets are being transferred to New England Federal Credit Union.

Friday, December 5, 2014

Responding to the impact of the recession, Russia has taken steps to limit transaction clearing activities and international transactions, with the central bank taking on a more prominent position. The central government is preparing a broad bailout of the banking system, which could extend to a financing vehicle for national infrastructure projects. The bailout is being paid for using pension funds.

Hawaiian Electric Industries’ board of directors approved a plan to spin off its $5 billion banking subsidiary, Honolulu-based American Savings Bank. It is one of three large banks based in Hawaii. The bank’s operations are not expected to be affected by the change in ownership. The new bank holding company will be one of two surviving entities in a planned electric company merger.

In Portugal, the successor to the failed Banco Espírito Santo will soon stop using that name. Workers have begun changing signs at branches to the new bank’s name, Novo Banco. Meanwhile, Novo Banco is working on selling some divisions and assets to make way for a sale of the bank to a new owner next year.

A surprisingly strong November U.S. jobs report has observers speculating that the Fed could begin raising interest rates. The current crisis-level interest rates are beneficial for banks that are deep in debt, but the artificially low rates tend to reduce the size of the banking sector and make it difficult for banks to make a profit from normal banking activities.

A credit union was liquidated this week. Metropolitan Church of God Credit Union had 191 members, who were members of the namesake church in Detroit, Michigan. State regulators closed the credit union on Wednesday, and the NCUA was in the process of verifying member accounts.

Two more days of data releases confirm that Black Friday sales were down significantly this year, and that the change is not the result of shoppers squeezed for cash. How much smaller was Black Friday than last year? One indication comes from album sales, as reported in Billboard:

According to Nielsen Music, album sales declined 15.2 percent for the week ending Nov. 30, when sales were 7.28 million units, versus the nearly 8.6 million units scanned last year during the corresponding week ending Dec. 1.

In-store album sales is a declining category, of course, but it isn’t declining that fast.

The decline in shopping comes as consumers are feeling nearly as confident as they were before the recession. From Bloomberg:

Consumer confidence climbed to a more than seven-year high in November as Americans’ views of their financial well-being improved heading into the holiday shopping season.

Could it be that reduced shopping is part of what is making consumers feel more confident? That is a difficult conclusion to come to, as it is something never observed before, but it is consistent with what I have observed in the stores since the Christmas shopping season got going in a visible way on October 31. I have been seeing people shopping with more energy and optimism than in years past, feeling good about what they get, being decisive, but buying less and taking less time than in past years.

If shoppers are spending the entire fall season getting ready for Christmas, it stands to reason that some of us are essentially ready by the time Thanksgiving rolls around. This would explain a lower level of activity at retail in recent days. Despite mixed predictions, the reduced buying carried over into Cyber Monday and today.

Monday, December 1, 2014

Are the many people who have not bothered to do any shopping over the past five days missing out?

I think that is the question that may help to explain the reports that show sluggish activity at retail on Black Friday, yesterday, and today and predict the downward trend will cut into today’s online shopping. Sales on Thanksgiving and Saturday looked like they were up from last year, but not enough to make up for the decline on the other days.

One reason the retail results are puzzling is that there were so many shoppers out at some point on Black Friday. The difference this time seemed to be that most shoppers were following a script, a preplanned sequence of stores with specific products in mind at each destination. Shoppers were trying to avoid distractions and delays so that they would not have their whole day taken up with shopping. That’s how a large number of shoppers can translate into light foot traffic in the stores, with retail workers being sent home early at the ends of their shifts.

Consumer confidence seems to be higher than the past few Christmas shopping seasons, and the mood I saw in the stores seemed to bear that out. People were in a good mood. They were feeling successful in their shopping. If they were spending less, it was not out of financial distress, but by choice or because of lower prices. Maybe the big spending of 2012 and 2013 was, in part, a way to make up for the restrained spending of the previous six years. If so, maybe that was a moment of splurging that no one ever intended to carry forward into 2014.

A Cyber Monday decline, if true, is easier to explain. There were millions of late deliveries last Christmas, with high profile media coverage of the lapses. Many of those late deliveries were for orders placed between Thanksgiving and Cyber Monday. Tens of millions of other deliveries were not made until Christmas Eve and Christmas, technically not late, but late enough to cause worry. After that scare, it is easy to imagine that a few of the more cautious shoppers might want to place their online orders a week or two earlier.

My own experience of the holiday weekend couldn’t possibly be typical, but others’ reactions to it could be indicative. When I told people I would be spending most of the weekend at home, trying to catch up on my studies and housekeeping, the consensus reaction was one of envy. There weren’t any of the “Aren’t you at least going to ___” questions that I might have faced last year. Maybe, then, we have reached the point where the hustle of Thanksgiving weekend has built up beyond what most people really want. Perhaps, then, it is now the shoppers more than the non-shoppers who worry that they are missing out on something. That would explain shoppers determined to stick to a shopping plan and get home on time.

I wonder also if there is some cultural embarrassment that Black Friday, the unofficial U.S. holiday dedicated to shopping and the consumption of manufactured products, is beginning to overshadow the more conventional holiday on the day before. I counted at least six different shopping boycotts, all poorly organized and seemingly unrelated to each other, but each one getting some traction anyway. When a boycott movement gains broad support, it usually means people are looking for an excuse not to go. Even without remembering what Thanksgiving is about you could get the feeling that turning it into Black Friday Eve would not be a step forward. The pushback against this trend has been widely remarked on for at least ten years, but may now have reached the point where it means something in a commercial sense.